Day: March 25, 2010

Jerry Simons was the final presenter at the March 18 Binghamton Natural Gas Development Summit. He is the executive director of the National Association of Royalty Owners (NARO). According to Mr. Simmons, NARO is the only organization to represent landowners that is completely independent and not attached to energy companies in any way.

NARO was founded in 1980 after the “windfall profits tax” was passed by the 96th Congress, a 35 percent tax on oil royalties. NARO fought against the tax, and it was eventually repealed in 1988.

NARO is an educational and advocacy group, chartered as a 501(c)3 and 501(c)6 non-profit organization. There are state chapters of NARO. New York and Pennsylvania fall under the Appalachia Chapter which covers the Mid-Atlantic and Northeast areas of the country.

As an example of what NARO does for royalty owners: Mr. Simmons said the Depletion Tax Allowance, part of federal law since the 1920s, is under assault by the Obama Administration. They tried to take the allowance away last year but were unsuccessful. They are trying again this year, as part of the 2011 budget. NARO is fighting against it. [MDN Comment: The Depletion Tax Allowance treats royalty owners as part owners of an asset, allowing them to “write down” the value of the asset as it is used up, in this case mineral deposits being the asset. Bottom line—if this allowance is taken away, taxes to the federal government go way up for royalty owners.]

Drilling is coming to Wayne County, Pennsylvania this summer according to officials with Newfield Exploration. They are waiting for approvals from regulators to begin drilling up to 10 exploration wells. If those wells show promising results, they will likely be turned into full production wells.

A Houston-based natural gas production company is laying the groundwork to fulfill its promise to drill up to 10 exploration wells in northern Wayne County this summer, with permits now trickling into the state Department of Environmental Protection.

Newfield Exploration Co., which partnered with international oil and gas production firm Hess Corp. to develop a 140,000-acre leasehold in Wayne and Susquehanna counties, recently filed for its first four natural gas drilling permits in Damascus and Manchester Twps.

The company has three pending drilling permits in Damascus Twp. [Wayne County] and one pending permit in Manchester Twp. [York County], according to state environmental regulator records. These permits, filed in late February and March, are on track to be approved by late April or May.*

As MDN previously reported, Mesa Energy, which owns the Java Field in Wyoming County, NY, is planning to convert two of the 19 gas wells on the property from Medina sandstone wells to Marcellus Shale wells. These are already drilled, vertical wells. We now have more details about what Mesa plans to do with these two wells, and with the Java Field. They are moving aggressively with Marcellus Shale gas using vertical drilling, giving them a head start on other energy companies.

From a press release by Mesa Energy issued today:

Mesa Energy Holdings, Inc. (the “Company”), an exploration stage oil and gas exploration and production company with a focus on the Marcellus Shale in western New York has announced that it has begun initial testing in its Java Field natural gas development project in Wyoming County, New York.

The Company has selected two of its nineteen existing Medina wells for testing of the Marcellus Shale. The two wells selected are approximately three miles apart. The testing process began in December 2009 with an initial round of location maintenance, logging and evaluation and the two wells will be re-completed once the required permits have been approved. The data obtained in December 2009 will be combined with additional data to design a frac program for both wells with these operations expected to be completed in the second quarter of 2010.

The Company believes that there are multiple stacked pay zones present in the field, including the Medina and Marcellus Shale zones and, possibly, the Utica Shale zone, and that there is also significant potential to enhance the production and lifespan of the existing Medina wells using modern technology.

The Company recently announced the results of an independent engineering review of its material assets in the Java Field. Based on this review, as modified by the Company to better reflect the actual acreage acquired, the potential gas in place in the Marcellus and associated shales is believed to be in a range from 106 billion cubic feet (BCF) at 50 feet of shale thickness to 425 BCF at 200 feet of shale thickness. Based on these numbers, potential recoverable gas reserves using a 25% recovery factor and 200 feet of shale thickness would be approximately 106 BCF. The Company projects total potential net revenue over the life of the project to be as much as $405 million gross before expenses, or $332 million net of expenses ($151 million at PV 10). These projections are based on a price of $5 per thousand cubic feet (MCF) of gas.

CEO of Mesa Energy Holdings, Inc., Randy M. Griffin said, “The test results from the first two wells will be an integral part of our evaluation to determine the potential production capability of additional existing wells in the Marcellus Shale. We have already submitted permit applications and expect to receive approval shortly. We will update our shareholders on our progress.”

The Company believes that, in addition to enhancing its existing 19 wells, it can potentially drill and complete up to 80 new vertical Marcellus Shale wells on the project acreage and that the shales in the Java Field and surrounding area could provide an excellent opportunity to achieve significant daily production rates.